In a speech in Cyprus today, Joachim Nagel, ECB Governing Council member and Bundesbank President, described the inflation outlook as “encouraging”. But he was quick to caution that this “that does not necessarily mean that the current hike cycle is now over.”
Nagel emphasized the potential need to raise rates again if the “inflation outlook worsened”
He mentioned that a downside surprise, where price growth returns to ECB’s 2% target quicker than anticipated, is “much less probable.” As a result, Nagel believes it is too soon to even consider the possibility of rate cuts.
On the economic growth front, Nagel projected a rebound next year. He noted that wage growth remains robust and pointed out that the disinflationary effect of falling energy prices has faded.
Nagel also specifically advocated for a “significantly” smaller balance sheet. He stressed his preference to “err on the side of caution” to ensure a timely return to price stability.
Italy EM Tria: Gradual reduction in deficit after 2019
Italy Economy Minister Giovanni Tria said today that the while the budget deficit will increased compared with previous forecast in 2019, “there will be a gradual reduction in the following years”. His comments echo reports that the populist government has revised their original plan after strong pressure from the EU.
Originally, the plan was to have budget deficit target at 2.4% of GDP in the three years from 2019. But according to unnamed government sources, the plan now is to keep 2.4% in 2019, but lower to 2.2% in 2020 and then 2% in 2021.
Prime Minister Giuseppe Conte is due to meet with key ministers today. The details could then be defined after the meeting.